EUR/GBP slips below 0.8400 after UK retail sales data

• EUR/GBP extends decline as Sterling gains support from BoE decision to hold interest rate.
• UK retail sales rose 1.0% in August, after a previous increase of 0.5%.
• Germany’s producer price index (MoM) rose a steady 0.2% for August.

EUR/GBP continues to lose ground, trading around 0.8390 during the Asian session on Friday following the release of UK retail sales data for August. Retail sales rose 1.0% month-on-month, beating the previous increase of 0.5% and the expected increase of 0.4%. Meanwhile, the annualized rate rose to 2.5%, up from the previous increase of 1.5%.

The British pound (GBP) received support from the Bank of England’s (BoE) decision to keep its interest rate at 5% on Thursday, as expected. The BoE had previously signaled the possibility of cutting rates at the start of the summer with a quarter-point cut at its last meeting, but the move may have been premature.

Out of the nine-member Monetary Policy Committee (MPC), BoE external member Swati Dhingra voted to cut interest rates for the second time in a row, while the rest of the members supported keeping rates at current levels. Investors had anticipated that two MPC members would support a conciliatory policy decision.

In the Eurozone, Germany’s producer price index (PPI) rose 0.2% month-on-month. However, the annual PPI fell by 0.8%, versus the expected 1.0% decline. Traders are likely to focus on European Central Bank (ECB) President Christine Lagarde’s speech at the Michel Camdessus Conference on Central Banking in Washington, DC on Friday.

European Central Bank (ECB) policymakers are divided on the pace of policy easing amid divergent views on the outlook for inflation. ECB Governing Council member Peter Kazimir and Deutsche Bundesbank President Joachim Nagel expressed their desire to see more evidence that inflation will return to the levels the bank aims for, according to Reuters.